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Financial System in the Modern Economy - Assignment Example

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In the paper “Financial System in the Modern Economy,” the author discusses an economy, which circulates the money in a way which is considered desirable for the growth and prosperity of the economy. It basically consists of three important parts…
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Financial System in the Modern Economy
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Download file to see previous pages Financial markets make it possible for people to trade securities. It is a good way of raising capital, transferring risk, liquidity maintenance and trading foreign exchange. The financial markets play an important role in instilling the level of confidence in the investors. They know that they can invest now and liquidate in the future when they need funds and allow them to earn interest on their money. Examples of Financial Markets can be Stock Markets, Money Markets, Forex Markets and IPOs (Lipsey and Chrystal). A good financial system usually contains financial markets as a platform that allows the trading of financial securities and instruments. Similarly, Financial Institutions consist of those organizations that allow channeling of funds and create credit in the economy. In case these are missing in a financial system, then the economy is deprived of multiplier effect and can face serious levels of unemployment and lack of investment motives. Examples of Financial Markets include Banks, Building Societies, Leasing Companies, etc. Financial Instruments are securities that are traded in the Financial Markets. These include bonds, stock, money market securities, and derivatives. Financial systems are highly mechanized and efficient systems. They came into being after years of improvement and constant changes in the ways it was run. However, still, no one can claim that the perfect financial system has been developed especially after the 2008 financial crisis. However, work is being done and new developments are taking place in the financial system and we can safely presume that it is not long before we will reach our destiny and develop a very good financial system that would try to avoid all risks and provide perfect liquidity and returns to the investors without any flaws that are present in the current financial system.  ...Download file to see next pagesRead More
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